$200M Lawsuit Charges Hollywood Party Planners With Racketeering, Shell Game
Before the next big show hits your TV screens, it's shopped to advertisers in "upfronts," lavish previews featuring network stars and musical numbers, hosted at venues like Lincoln Center and Carnegie Hall. And long before a single episode of that show hits the airwaves, a whole team goes to work on its scenery and backdrops. Who puts on these extravagant unveilings? Who do the networks call to design the latest sets and reality TV backgrounds? Turns out, it's a much messier process than the Hollywood polish would lead you to believe.
An entertainment industry party planning company is suing former employees and their side businesses, claiming they siphoned off millions in profit that should've gone to the company itself. Not only that, but party planners claim the illegal enterprise went on so long it amounted to racketeering, and now they're looking for $200 million in damages.
For years, XA The Experiential Agency made millions organizing television upfronts (annual events hosted by networks to showcase new shows to advertisers) and planning promotional events for shows on NBCU's USA Network, Bravo and the Oxygen Channel. But when XA was acquired by CMG Holdings, the new owners were having trouble tracking all that money. According to a lawsuit filed by CMG, that difficulty was because ex-XA execs and employees had established an elaborate shell game involving alleged XA subsidiaries, moved money between companies, and left XA with nothing but expenses while the employees seized the profits.
Last year, CMG sued Joseph Wagner, Darren Andereck, Jean Wilson, Jessie Lomma, Michael Day, and Remegio Gudin along with their new enterprise HudsonGray, claiming RICO Act violations along with a dozen state law claims. A federal judge just ruled the case can proceed, and hinted that the $200 million CMG is asking for in punitive damages may not be a stretch.
CMG's allegations total 80 pages, but can be distilled to one over-arching charge:
"The result of their shell game was that XA barely broke even, while Defendants' other companies made millions, that should have gone to XA ... Their scheme remained hidden as defendants created fake invoices, lied to XA's owners and to XA customers to facilitate their diversions of XA funds and resources. When XA's owner, CMG Holdings Group Inc. started asking hard questions, Defendants quickly moved all XA's assets, including intellectual property, such as customer lists and contracts, and physical property, such as computers and the office furniture, to a new company, HudsonGray, that they created and tried to permanently destroy XA's servers, to conceal their crimes."
CMG also claims the shadow company, HudsonGray, stole existing and future business. CMG is asking for $20 million in compensatory damages, wants three times that amount for the alleged racketeering scheme and ten times the amount as punishment to the defendants. That may sound excessive, but U.S. District Court Judge J. Paul Oetken didn't think so: "Given the chutzpah with which Defendants allegedly executed their schemes, the Court finds that the request for punitive damages is sufficient to survive the motion to dismiss."
You can read the laundry list of allegations, along with the judge's ruling below:
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